Dynamic factor models: A review of the literature

Karim Barhoumi (), Olivier Darné and Laurent Ferrara

OECD Journal: Journal of Business Cycle Measurement and Analysis, 2014, vol. 2013, issue 2, 73-107

Abstract: In the last few years, the growth in the amount of economic and financial data available has prompted econometricians to develop or adapt new methods enabling them to summarise efficiently the information contained in large databases. Of these methods, dynamic factor models have seen rapid growth and become very popular among macroeconomists. In this paper, we carry out a survey of recent literature on dynamic factor models. We start by presenting the models used before looking at parameter estimation methods and statistical tests available for choosing the number of factors. We then focus on recent empirical applications dealing with the construction of economic outlook indicators, macroeconomic forecasts, and both macroeconomic and monetary policy analyses.

Keywords: Dynamic factor models; estimation; tests for the number of factors; macroeconomic applications (search for similar items in EconPapers)
JEL-codes: C13 C32 C51 E66 F44 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (13)

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Related works:
Working Paper: Dynamic Factor Models: A review of the Literature (2013)
Working Paper: Dynamic factor models: A review of the literature (2013)
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